• bodily injury liability covers you against personal injury claims from anyone you might injure in a traffic accident;
• medical payments to you and and any passengers in your car at the time of the accident;
• property damage liability covers you against property damage claims, e.g. for another car you damage;
• physical damage may be either collision which covers damage to your car if there is a collision, or comprehensive which covers most physical damage to your car not caused in a collision, e.g. it is damaged in a flood; and
• uninsured and underinsured motorist which pays you when the driver at fault has no insurance or insufficient insurance

Now you know what options to consider, make an honest assessment of your own driving. If you are a young driver, the statistics say you are more likely to have an accident. Look at your driving record to date. The more speeding tickets and minor scrapes you have had, the greater your need for comprehensive cover, particularly if you drive a lot on busy roads. But if you are a more mature driver with no recent tickets or accidents, and you drive on quiet roads, you may opt for a collision only policy. Remember, unless there is a term in your auto loan package specifically requiring both, you do not have to carry both collision and comprehensive cover.

Insurance companies collect mountains of data about traffic accidents. They employ actuaries to analyze all this information to identify the types of drivers in different makes and models of cars most likely to be involved in accidents. History produces trends and this sets the premiums for different drivers in different cars. There are also statistics showing the likelihood that your car will be stolen. If you are the proud owner of a car more likely to disappear, you need comprehensive cover. However, all this information is two-edged. Claims departments have the experience to judge when your claim matches the data and when it is different. Although insurance companies like to advertize their services with reassuring statements about the way they handle claims, real world experience can be very different.

No matter which policy you have paid for, your insurer may look very hard at a claim that does not fit their expectations. For example, a low-speed collision with a high property damage claim. You may find a claims investigator at your door asking for more information. There may be inquiries made at the body shop where your car is waiting for the work to be done. At times like this, you need to know exactly what the terms of the policy say. If the insurer issues a smaller check than you were expecting, you need to know what your rights are. Put the other way round, before you buy a policy you should look at the terms to see what rights you have and what powers the insurer has. Checking out whether there have been complaints against the insurer is also useful information before you sign up.

For a simple state-by-state list, see http://personalinsure.about.com/cs/vehicleratings/a/blautominimum.htm. For example, Ohio has limits of 12.5/25/7.5. The first two numbers refer to personal injuries. So, each injured claimant is entitled to receive a maximum under the policy of $12,500 with no more than $25,000 payable for each accident. If more than two people are injured, or the injuries suffered by one are more serious, you are responsible for paying all the additional amounts of compensation ordered by the courts. The third number is the limit for property damage. At the other end of the scale, Alaska and Maine have minimums of 50/100/25, i.e. four times those in Ohio with somewhat higher premiums payable. Some states also require you to carry uninsured cover so that you have some protection if the other driver is not insured.

You need to draw a breath at this point. Never make any quick assumptions. You could shake your head in wonder at Ohio’s approach. A hospital could burn $12,500 in a day’s treatment for more serious injuries. And only $7,500 for property damage? That’s not going to cover much work in the body shop for an upmarket car. What is the average cost of a new car to replace the one too badly damaged to repair? But that is the wrong approach. First you have to get into a traffic accident. That accident has to be more than a minor fender bender. More importantly, you have to be worth chasing for damages.

Taking those points in order: if you are an older driver that does only a few miles on quiet roads each month, the chances of you being involved in a more serious accident are small. Although someone could come through an intersection on red and hit you, the probability is low. But if you do hundreds of miles on busy roads, the chances of an accident go up. The more likely the accident, the greater the risk that it will involve more serious injuries and greater property damage. Even so, you may still decide to insure at the minimum level only.

If you are driving a second-hand car which has little value, you are a renter and have only a few assets, no insurance company is going to chase you for money you do not have. But if you have a good job, you own your own home with a good equity in it and have savings, you are more likely to find yourself involved in litigation (assuming the accident was in part your fault). The rule is therefore that it is only worth taking out more than the basic minimum insurance cover if you have assets to protect. Then only take out as much as you realistically think you need. Do not assume the worst will happen and do not listen to any insurance agent telling you the worst will always happen. Only take out as much as you think you need.

Well, you should think of insurance policies in the same way. Just as you would not buy the first pair of pants or skirt you see, you should not buy the first policy you see. The terms and conditions in policies are the same as the fabrics and colors of clothes. Some suit you. Others hang on you like a sack and clash with the color of your hair. To get a good fit, you often have to sort through the stock in several stores.

Insurance policies are exactly the same. Bring the same enthusiasm you have for shopping in the real world to the task of buying the right policy for you. It is true that the statutory minimum policies required in each state may have more or less the same terms, but there may be big differences in the premium rates. When you move up from the bare minimum cover, those differences start to widen. There can be hundreds of dollars separating the best and worst policies. But if you do not shop around, you can never save that money.

If all you do each year is to renew the old policy, the odds are you are paying too much.

If this is your first policy and you buy the first one you see, it is a lottery whether you have found good value.

Basic rule: Do not gamble with something as important and expensive as auto insurance. Always get multiple quotes before making a decision on a new policy or a renewal. This site is the perfect place to start. Here you can get quotes from all the major insurers licensed to sell policies in your state. But before you start, there are a number of issues to think about.

Guidelines

• never pay more than you need to pay - that means you have to figure out exactly how much cover you need, so check out what the minimum requirements are for your state and then decide whether you need to top up;
• if you get in an accident, you will be glad to find you have enough liability insurance to cover the claims made against you;
• a car is often a big ticket item - can you afford to lose the cash you paid for it?
• does your auto finance package require you to carry insurance? if so, what cover is required?
• find out what discounts are available and how to qualify for them.

You know another reason why it’s a good idea? That innocent person walking across the street deserves to be compensated for his injuries. You could be ruined financially, but his life may be just ruined. Compensating him is fair and it’s the right thing to do.

Let’s take another example. As you drive, you approach an intersection. You come to a stop sign, signaling to make a left hand turn. A man in a car across the way waves you on. You start to turn and boom, he hits you. When the police arrive he denies ever having waved you on and even though it was just a minor fender bender, he is complaining of a severe pain in his back. Yes, this man is attempting to commit fraud. Illegal, but tough to prove.

Suppose you didn’t have liability insurance. How are you going to pay the lawyers to defend your case? How are you going to prove fraud? It’s just your word against his.

Bodily injury and property damage liability insurance also pays for your defense costs, for actions brought against you as a result of an auto accident. In addition, it is the insurance company’s duty to investigate all cases of suspected car insurance fraud. Maybe this man committed fraud before and the insurance company has a record of it. Perhaps the insurance company can draw on expert witnesses to testify that given the very minor damage to the vehicles, no serious injury could have possibly been sustained.

Bodily injury and property damage liability insurance is a good idea. It protects you when an accident is your fault and when it’s not your fault. It provides compensation to deserving victims of automobile accidents, and when an accident is staged and there is a case of fraud, a company with resources can investigate the claim.

The best Life insurance for you here

There are five fundamental automobile insurance coverages. They are:
1. Bodily Injury and Property Damage Liability coverage,
2. Personal Injury Protection coverage (sometimes called "No-Fault"),
3. Uninsured and Underinsured Motorists coverage,
4. Collision coverage,
5. Comprehensive coverage (sometimes called "Other Than Collision").

The first three coverages; 1. bodily injury and property damage liability coverage, 2. personal injury protection coverage, and 3. uninsured and underinsured motorists coverage, are required by law in most states.

The other two coverages; 4. collision coverage and 5. comprehensive coverage, are not required by law, but are usually required to be purchased under the terms of most finance contracts. That is, when you buy a new or used car and are financing the purchase through a bank or some other financial entity, they usually require you to purchase these coverages as a condition of the loan. Similarly, when you are leasing a car, the leasing company will often require comprehensive and collision coverage.

Automobile insurance may be required, but even if it weren’t, it is still a good idea to have car insurance. In the next post are some examples why.